VIBC

NEWS

By Julia Bradshaw (the Telegraph)

The UK economy will grow faster than expected this year, the European Commission has admitted after upgrading its growth forecasts by 50pc.

The Commission, which is the executive arm of the European Union and proposes and enforces legislation, now expects the UK economy to expand by 1.5pc in 2017, compared with its estimate of just 1pc in November.

It said the country's growth rate had held up since the EU referendum in June, and that a rise in exports, fuelled by the weak pound,

would help support the economy.

The news helped the FTSE 250 hit a record high and sent the pound higher against the dollar, edging above $1.25 in early trading.

It comes days after fresh figures from the Office for National Statistics revealed that UK growth was stronger than expected at the end of last year, amid a manufacturing surge and narrowing trade gap. Britain's industrial production in December grew 4.3pc year-on-year, the strongest pace of growth in six years.

However, the Commission warned that the impact of the vote to leave the EU would eventually be felt and that GDP growth in Britain would "ease notably" over the course of the year.

A slowdown in household spending driven by higher inflation, lower business investment and an easing jobs market meant that growth in 2018 would fall to 1.2pc.

"The factors weighing on private consumption growth are expected to persist, and intensify, and business investment is expected to increase only marginally," the Commission said.

Although business investment is projected to rise this year, the Commission said growing uncertainty would deter companies from investing in the UK and that spending would slow throughout 2017.

GDP growth in the euro area will increase by 1.6pc this year, rising to 1.8pc in 2018, the Commission said, while economic growth in the EU as a whole will rise 1.8pc this year and next, driven by consumer spending, an improvement in the labour market and EU-funded projects to support private and public investment.

Despite this, the unemployment rate in the eurozone will remain high, at 9.6pc this year and 9.1pc in 2018. This is well above pre-crisis levels and compares with forecasts of 5.2pc and 5.6pc in the UK over the same period.

"Given the lag between decisions to invest and actual investment, the impact of the result of the EU referendum is expected to become apparent later in 2017," it said.

The Commission was more positive on the state of the Government's finances, with debt and the national deficit, which is the amount the state needs to borrow to meet the shortfall between income and spending, both expected to decline over the next three years.

Overall, every economy in the EU is projected to grow between 2016 and 2018, the Commission said. If these forecasts materialise, it would mark the first time this has happened in almost a decade.